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We aim to bring what you learn 44 00:02:09,840 --> 00:02:13,880 in the classroom to life with real world examples and 45 00:02:13,880 --> 00:02:16,600 hopefully at the same time have some fun with it. 46 00:02:16,920 --> 00:02:23,440 So let's dive in. Hello and welcome back to the 47 00:02:23,440 --> 00:02:25,680 Deal Room. And we have a mini two-part 48 00:02:25,680 --> 00:02:29,040 episode because we had lots of questions about an area called 49 00:02:29,080 --> 00:02:33,000 ESG, which I'm sure all of you have heard of and probably have 50 00:02:33,000 --> 00:02:34,680 some degree of knowledge about it. 51 00:02:35,040 --> 00:02:37,920 But I have always on the call with me, Stephen, who is an 52 00:02:38,120 --> 00:02:42,560 somewhat ESG expert and he's going to break down everything 53 00:02:42,560 --> 00:02:44,880 from the history. How big is the industry? 54 00:02:45,080 --> 00:02:48,240 What actually is it? Why is it so hard and 55 00:02:48,240 --> 00:02:50,680 challenging to do? And in the second part, we'll 56 00:02:50,680 --> 00:02:53,160 talk about things like, is ESG dead? 57 00:02:53,160 --> 00:02:56,360 Or in fact, is it even more important than ever? 58 00:02:56,600 --> 00:03:02,080 So, Steven, how are you first? Yeah, I'm, I'm a little bit ill 59 00:03:02,120 --> 00:03:04,840 and, and I think I probably caught, I don't know whether 60 00:03:04,840 --> 00:03:07,920 this is the real thing, but I've caught spring weekitis. 61 00:03:09,000 --> 00:03:12,960 So this is this is probably the illness that you get after 62 00:03:12,960 --> 00:03:17,280 spending time with so many highly capable, highly ambitious 63 00:03:17,320 --> 00:03:20,440 young people that are that definitely want to talk to you 64 00:03:20,440 --> 00:03:22,040 and want to put their best foot forward. 65 00:03:22,280 --> 00:03:25,360 But yeah, we've been all over the houses this weekend and, and 66 00:03:25,360 --> 00:03:27,240 so have you. What are, what are, what are 67 00:03:27,240 --> 00:03:30,480 your reflections from your week with various different bold 68 00:03:30,480 --> 00:03:32,800 brackets and boutiques and all of that kind of thing? 69 00:03:33,120 --> 00:03:36,200 Yeah, So really excited actually because this week I got to work 70 00:03:36,200 --> 00:03:40,240 with two banks that I haven't done before, so JP Morgan and 71 00:03:40,240 --> 00:03:44,080 Wells Fargo. And so, yeah, it was amazing to 72 00:03:44,080 --> 00:03:48,920 see, you know, spring weeks, obviously everyone's super keen 73 00:03:48,920 --> 00:03:50,880 and everyone's asking lots of questions. 74 00:03:50,880 --> 00:03:55,120 I almost like the fact that there's like no shackles at that 75 00:03:55,120 --> 00:03:57,240 point. They're all just super buzzing, 76 00:03:57,440 --> 00:04:00,040 super up for it. And yeah, just the enthusiasm 77 00:04:00,040 --> 00:04:01,200 overall. So that was amazing. 78 00:04:01,240 --> 00:04:03,760 But how, where, where were you? I haven't even seen you. 79 00:04:04,400 --> 00:04:06,480 Yeah, no, exactly. I've been on a bit of a tour. 80 00:04:06,480 --> 00:04:08,960 We were Bank of America for a few days, actually. 81 00:04:08,960 --> 00:04:11,600 Shout out the Bank of America team and all of the great spring 82 00:04:11,600 --> 00:04:13,680 week there. We're at Morgan Stanley, which 83 00:04:13,680 --> 00:04:17,760 was a fantastic event as well. And then we spent all yesterday 84 00:04:17,760 --> 00:04:19,839 at Jeffrey's. And I can say, having done this 85 00:04:19,839 --> 00:04:23,640 for a few years now, my God, there's some quality out there. 86 00:04:23,840 --> 00:04:27,320 I look back to when I was 19 and I think, God, I didn't even 87 00:04:27,320 --> 00:04:30,120 know. People are talking about return 88 00:04:30,120 --> 00:04:33,080 on invested capital, they're talking about marginal 89 00:04:33,080 --> 00:04:36,120 propensity consumed. They're putting football fields 90 00:04:36,120 --> 00:04:38,240 in their presentation. They're doing all of these 91 00:04:38,240 --> 00:04:40,920 things that I only really learnt about when I had to when I was 92 00:04:40,920 --> 00:04:43,840 at the bank. So a massive, massive shout out 93 00:04:43,840 --> 00:04:46,640 to the confidence and the competence of a lot of these 94 00:04:46,640 --> 00:04:48,520 people. But I think you're, you're, 95 00:04:48,600 --> 00:04:52,240 you're right when, when you say the shackles are off, it's 96 00:04:52,240 --> 00:04:55,560 always that analogy, always go back to the kind of sporting 97 00:04:55,560 --> 00:04:58,640 concept that, you know, when you're in your mid 30s, I'm a 98 00:04:58,640 --> 00:05:01,640 bit of a golfer. When you're in the mid 30s and 99 00:05:01,640 --> 00:05:04,440 you're trying to win a big tournament, you have to get into 100 00:05:04,440 --> 00:05:08,680 the mindset and think, you know, try to be like a 21 year old 101 00:05:08,680 --> 00:05:14,400 again, try to play without fear and the shackles come off right. 102 00:05:14,400 --> 00:05:16,800 You know, there's the big golf tournament at the moment and 103 00:05:16,800 --> 00:05:20,360 there's a certain Northern Irishman trying to win, and he's 104 00:05:20,360 --> 00:05:23,080 been trying for 11 years and the shackles are well and truly on. 105 00:05:23,320 --> 00:05:25,480 But you see these young people and it's like, all right, you 106 00:05:25,480 --> 00:05:27,680 guys are up for it. You don't have any of the 107 00:05:27,680 --> 00:05:33,080 baggage that I have, having worn a few and seen seen a few things 108 00:05:33,080 --> 00:05:35,560 in my career. So definitely embrace that. 109 00:05:35,560 --> 00:05:38,680 That's the secret weapon, the energy, the enthusiasm, the 110 00:05:38,680 --> 00:05:41,720 willingness to ask questions. So, yeah, yeah. 111 00:05:41,760 --> 00:05:45,880 Despite getting spring week, Itis, I came away with a lot of 112 00:05:45,880 --> 00:05:47,320 energy. I thought the quality was just 113 00:05:47,320 --> 00:05:49,240 outstanding. So shout out to everyone that I 114 00:05:49,240 --> 00:05:51,240 met. Yeah, absolutely. 115 00:05:51,240 --> 00:05:54,280 I'd second that for sure. So yeah, where do you want to 116 00:05:54,280 --> 00:05:57,320 start then with this ESG topic? I know there's plenty of 117 00:05:57,320 --> 00:05:59,160 interest. Yeah. 118 00:05:59,160 --> 00:06:01,760 And just a little bit of background as to why I wanted to 119 00:06:01,760 --> 00:06:04,720 do this episode. Now, obviously we could have 120 00:06:04,720 --> 00:06:09,080 gone down the typical what's going on in the news path and 121 00:06:09,080 --> 00:06:12,720 there'll be plenty of podcasts filling up your feed where you 122 00:06:12,720 --> 00:06:16,720 can get your dose of that. I always think it's important 123 00:06:16,720 --> 00:06:22,320 just as an aside to imagine myself, you know, 30,000 foot or 124 00:06:22,320 --> 00:06:25,520 maybe even as an astronaut and I don't get to check in with the 125 00:06:25,520 --> 00:06:27,360 news. You know, maybe I get to check 126 00:06:27,360 --> 00:06:29,080 in with the news every two weeks, right? 127 00:06:29,960 --> 00:06:32,480 That really gives you a wonderful perspective on not 128 00:06:32,480 --> 00:06:35,880 having to follow the everyday. Like you can follow the everyday 129 00:06:35,880 --> 00:06:39,240 for entertainment purposes, but it's not necessarily that 130 00:06:39,240 --> 00:06:41,920 educational. It's it's gripping. 131 00:06:42,640 --> 00:06:44,800 Oh God, it's peers listening to this. 132 00:06:45,160 --> 00:06:48,200 There's this controversial stuff coming out of your mouth right 133 00:06:48,200 --> 00:06:49,600 now, Stephen. Just be careful. 134 00:06:50,640 --> 00:06:52,400 Well, look, that's why we do different podcasts and that's 135 00:06:52,400 --> 00:06:54,320 why we never meet in the office anymore. 136 00:06:55,800 --> 00:06:57,920 But look, you know, there's all of this volatility and loads of 137 00:06:57,920 --> 00:06:59,640 oscillations and there is, yeah, obviously there's some 138 00:06:59,640 --> 00:07:03,000 interesting stuff behind it, but you, you can zoom out and 139 00:07:03,000 --> 00:07:05,640 actually try and pick apart some, some big themes. 140 00:07:05,640 --> 00:07:08,920 And, and one of these themes quite apart from everything 141 00:07:08,920 --> 00:07:14,720 that's going on is, is ESG. And I know that students are 142 00:07:14,720 --> 00:07:20,280 massively interested in building a career that has a positive 143 00:07:20,280 --> 00:07:23,120 impact. And sometimes when going into 144 00:07:23,120 --> 00:07:26,440 finance, you might get some pushback from your, your peers 145 00:07:26,440 --> 00:07:29,040 and your friends going, God, you're going to sell your soul. 146 00:07:29,320 --> 00:07:34,400 You're just in it for the money. You know, finance is evil, you 147 00:07:34,400 --> 00:07:37,280 know, Wall Street protests, etcetera, etcetera. 148 00:07:37,480 --> 00:07:40,880 But I just want to kind of provide students that are 149 00:07:40,880 --> 00:07:43,920 looking to have an impact in their financial career with a, 150 00:07:44,040 --> 00:07:46,360 with a bit of an, an overview of ESG. 151 00:07:47,000 --> 00:07:50,720 And in the second part of this episode, really, really having 152 00:07:50,720 --> 00:07:53,440 that discussion about, all right, is it still relevant? 153 00:07:53,720 --> 00:07:58,880 Has it, has it lost its luster? Is it still important and should 154 00:07:58,880 --> 00:08:00,760 you care? So that's what we're going to 155 00:08:00,760 --> 00:08:02,360 do, but we're going to start right at the beginning. 156 00:08:03,160 --> 00:08:06,760 Should we do some history? Yeah, I mean, I couldn't even 157 00:08:06,760 --> 00:08:10,120 tell you when this concept of ESG even first came about. 158 00:08:10,120 --> 00:08:11,800 So yeah, seems like a good place to start. 159 00:08:12,480 --> 00:08:15,400 Well, it's one of those things that I could probably do a 160 00:08:15,400 --> 00:08:18,400 number of episodes just on the history, but I'm going to try 161 00:08:18,400 --> 00:08:22,360 and shorten it. This concept of, I'm going to 162 00:08:22,360 --> 00:08:28,520 call it paternalistic capitalism has been around since very, very 163 00:08:28,520 --> 00:08:32,919 soon after the notion of capitalism was coined, right? 164 00:08:33,320 --> 00:08:39,280 This concept, whether it's the Cadbury factory in the Cadbury 165 00:08:40,320 --> 00:08:44,640 town of Bournville in the late 19th century, just for a little 166 00:08:44,640 --> 00:08:47,400 bit of a history lesson, Cadbury's in the UK is a 167 00:08:47,400 --> 00:08:51,120 chocolate manufacturer and the owners of Cadbury's Cadbury 168 00:08:51,120 --> 00:08:53,760 family, they were Quakers and they were very, very 169 00:08:54,560 --> 00:08:56,520 paternalistic. They really cared about their 170 00:08:56,520 --> 00:08:59,880 employees, but maybe to, you know, an extent that we wouldn't 171 00:08:59,880 --> 00:09:03,040 feel happy with with our liberal 21st century brains. 172 00:09:03,040 --> 00:09:07,840 But they built a whole town which was aimed at being the 173 00:09:07,840 --> 00:09:11,960 perfect place to work and live. And there were no pubs. 174 00:09:11,960 --> 00:09:15,640 And it was a little bit of a strange place to to work and 175 00:09:15,640 --> 00:09:17,120 live. But you know what it had it's it 176 00:09:17,120 --> 00:09:18,640 had its benefits. It's still around, by the way, 177 00:09:18,640 --> 00:09:21,720 just outside Birmingham. So this concept of paternalistic 178 00:09:21,720 --> 00:09:25,520 capitalism and cooperative capitalism has been around since 179 00:09:25,560 --> 00:09:30,680 basically day dot, but we accelerate through, through the 180 00:09:30,680 --> 00:09:33,800 kind of first and Second World wars and into the, well, kind of 181 00:09:33,800 --> 00:09:38,680 post Second World War welfare state consumer capitalism era of 182 00:09:38,680 --> 00:09:43,600 the 1950s, sixties and 70s and stopping the whistle stop tour 183 00:09:43,600 --> 00:09:47,960 in the 1980s. And as a counterpoint to the 184 00:09:47,960 --> 00:09:52,480 birth of ESG, the 1980s greed is good. 185 00:09:53,200 --> 00:09:56,120 Oh yeah, maybe. I know it's your favorite 186 00:09:56,120 --> 00:09:58,160 history, favorite era in history. 187 00:09:59,600 --> 00:10:03,000 This is the this is the Friedman, Milton Friedman 188 00:10:03,160 --> 00:10:05,000 doctrine. And this is from a New York 189 00:10:05,000 --> 00:10:08,400 Times article actually in 1970s, so a little bit before the 190 00:10:08,400 --> 00:10:13,120 deregulation of the Reagan era. So the New York Times article in 191 00:10:13,120 --> 00:10:17,080 1970s was titled A Friedman doctrine. 192 00:10:17,360 --> 00:10:22,040 The social responsibility of business is to increase its 193 00:10:22,080 --> 00:10:28,000 profits. So that was the overarching, you 194 00:10:28,000 --> 00:10:30,320 know, precursor to neoliberalism. 195 00:10:30,600 --> 00:10:35,360 So Friedman argued the executive spending money on anything but 196 00:10:36,000 --> 00:10:38,840 something that was going to make money is in effect spending 197 00:10:38,840 --> 00:10:41,280 someone else's money for their own purposes. 198 00:10:41,520 --> 00:10:46,200 So he was massively anti corporate social responsibility, 199 00:10:46,400 --> 00:10:50,160 anti philanthropy as part of a businesses cause. 200 00:10:50,400 --> 00:10:54,040 The social responsibility of business is to increase its 201 00:10:54,040 --> 00:10:57,320 profits and to hell with everything else, right? 202 00:10:57,600 --> 00:11:02,160 A single stakeholder view of the business. 203 00:11:03,040 --> 00:11:06,840 And actually in the world of Gordon Gekko and in the world of 204 00:11:06,840 --> 00:11:11,800 1980s Wall Street, etcetera, I always think to myself, life was 205 00:11:11,800 --> 00:11:14,240 just so much more simple, right? Greed is good. 206 00:11:14,240 --> 00:11:17,880 Make money. Like there is one metric that 207 00:11:17,880 --> 00:11:22,360 you live and die on, and that is profits or return on investment 208 00:11:22,360 --> 00:11:25,400 if you're an investor. And that was the kind of that 209 00:11:25,400 --> 00:11:28,960 was the heady days of the 1980s and into the 1990s. 210 00:11:29,560 --> 00:11:34,240 Now what happened to to flip that back towards a more 211 00:11:34,240 --> 00:11:36,080 sustainable version of capitalism? 212 00:11:36,440 --> 00:11:39,520 Well, there are a number of different forces that has led to 213 00:11:39,520 --> 00:11:42,560 the birth of the SG. I'm going to pick out the two 214 00:11:42,640 --> 00:11:45,360 main ones. The first with the global 215 00:11:45,360 --> 00:11:51,520 financial crisis, Yeah, excuse me, global financial crisis 2000 216 00:11:51,520 --> 00:11:57,760 and seven, 2008, the unbridled under regulated pursuits of 217 00:11:58,200 --> 00:12:04,280 greed at the expense of normal people was that, you know, was 218 00:12:04,280 --> 00:12:06,680 the headline that was that was kind of carried out led to the 219 00:12:06,680 --> 00:12:10,960 Occupy Wall Street movement, etcetera, and the impending and 220 00:12:10,960 --> 00:12:12,920 ever more present climate crisis. 221 00:12:13,800 --> 00:12:18,360 So what happens when these two forces meet while the UN gets 222 00:12:18,360 --> 00:12:21,600 involved? And actually back in 2004, they 223 00:12:21,600 --> 00:12:27,520 coined the term ESG environment social governance in a paper 224 00:12:27,520 --> 00:12:32,280 titled Who Cares Wins. And then it started to build a 225 00:12:32,280 --> 00:12:35,480 little bit of momentum, but really, really kicked off post 226 00:12:35,480 --> 00:12:39,840 financial crisis where everyone was soul searching and starting 227 00:12:39,840 --> 00:12:42,760 to think to themselves, all right, like what? 228 00:12:42,920 --> 00:12:45,880 What's the point in all of this? What are we doing this for? 229 00:12:46,040 --> 00:12:49,160 We basically disrupted the entire financial system. 230 00:12:49,560 --> 00:12:54,480 Can we be better actors and can we be better custodians of money 231 00:12:55,040 --> 00:12:59,240 and can we be better businesses? We're going to Fast forward to 232 00:12:59,240 --> 00:13:01,760 2015 and then we're going to take a pause and look at the 233 00:13:02,240 --> 00:13:08,040 maybe the size of the industry 2015 again, the UN implemented 234 00:13:08,920 --> 00:13:12,080 AI would say implemented announced the sustainable 235 00:13:12,080 --> 00:13:16,120 development goals 17 targets that we need to try and achieve 236 00:13:16,360 --> 00:13:21,960 as a business, political, social and investing community by 2013. 237 00:13:21,960 --> 00:13:26,080 Everything from clean water to quality education and climate 238 00:13:26,080 --> 00:13:31,040 action, big overarching goals. That's in the kind of low 239 00:13:31,040 --> 00:13:35,960 interest rate, soul searching environment of the 20 tens. 240 00:13:36,360 --> 00:13:40,600 A lot of the biggest asset managers got massively behind. 241 00:13:40,880 --> 00:13:44,240 They all signed up to the principles of responsible 242 00:13:44,240 --> 00:13:48,720 investing, which had and it's peak over, I think it was over 243 00:13:48,720 --> 00:13:53,720 $100 trillion of assets aligned to these responsible investing 244 00:13:53,720 --> 00:13:56,640 goals. Loads of investors were coming 245 00:13:56,640 --> 00:14:01,000 out with ESG funds, sustainable Development goal funds. 246 00:14:01,160 --> 00:14:04,200 This thing was gaining momentum and everyone wanted to be part 247 00:14:04,200 --> 00:14:07,480 of it such that I remember going to conferences when I was 248 00:14:07,480 --> 00:14:11,800 working in this space and it was like the back slapping capital 249 00:14:11,960 --> 00:14:14,840 of the world, right? Look at us, we're making so much 250 00:14:14,840 --> 00:14:17,600 money and we're doing good. How cool are we? 251 00:14:18,320 --> 00:14:21,800 And it really, you know, it was pretty 2 faced, but it was a 252 00:14:21,800 --> 00:14:26,280 really interesting period that kind of 2014 to 2020 era. 253 00:14:27,640 --> 00:14:32,600 That's such a great summation. I think of what has probably 254 00:14:32,600 --> 00:14:37,240 saved a lot of people either talking to Jack GBT or reading a 255 00:14:37,240 --> 00:14:39,760 long form book. So yeah, that was a really good 256 00:14:40,080 --> 00:14:42,840 kind of synopsis. So tell, maybe tell me then I'd 257 00:14:42,840 --> 00:14:47,120 just like to get a bit of a feel for you mentioned a few numbers 258 00:14:47,120 --> 00:14:48,720 there. I know probably those numbers 259 00:14:48,720 --> 00:14:52,080 have changed in those ten years from 20/15/16. 260 00:14:52,560 --> 00:14:56,760 So how big is this industry in the context to just more 261 00:14:56,760 --> 00:15:00,240 traditional investing? And also I'm assuming there's 262 00:15:00,240 --> 00:15:04,400 quite big geography difference between Europe, US, Asia and so 263 00:15:04,400 --> 00:15:06,680 on? Yeah, it's a really good 264 00:15:06,680 --> 00:15:08,400 question. And I think the question of how 265 00:15:08,480 --> 00:15:12,920 big is the industry, the ESG environment, social and 266 00:15:12,920 --> 00:15:16,680 governance industry, I think the reason why I'm putting it so 267 00:15:17,240 --> 00:15:20,760 close to the top of this episode is because it belies a really 268 00:15:20,760 --> 00:15:23,840 important point, like what is ESG? 269 00:15:24,960 --> 00:15:29,200 And can you just call yourself an ESG fund without doing that 270 00:15:29,200 --> 00:15:33,960 much good stuff, right? So the way that I tried to solve 271 00:15:33,960 --> 00:15:36,720 this question or try to answer this question was by asking a 272 00:15:36,720 --> 00:15:42,240 bunch of different chat bots, Chat GPTS, and just to see what 273 00:15:42,240 --> 00:15:44,000 they came up with, right? Because if they can't find 274 00:15:44,000 --> 00:15:48,760 consensus, I don't know who can. So I asked Gemini, Google's 275 00:15:48,760 --> 00:15:52,920 Gemini, and they said the size of the ESG industry is 3.2 276 00:15:52,920 --> 00:15:56,320 trillion ES. And by the way, this is ESG 277 00:15:56,520 --> 00:16:00,320 assets under management. So $3.2 trillion of assets under 278 00:16:00,320 --> 00:16:03,360 management aligned to ESG investing strategies. 279 00:16:04,200 --> 00:16:08,360 OK, that's fine. So then I asked ChatGPT, a 280 00:16:08,360 --> 00:16:10,600 ChatGPT. Well done for Jack. 281 00:16:10,600 --> 00:16:13,320 GPT referenced its sources, Bloomberg. 282 00:16:13,320 --> 00:16:17,640 It says Bloomberg Intelligent projects that ESG assets are on 283 00:16:17,640 --> 00:16:21,320 track to exceed 53 trillion by 2025. 284 00:16:21,320 --> 00:16:24,360 Wow, I need to get my market market making hat on here. 285 00:16:24,640 --> 00:16:27,240 It's a nice little spread. That's a nice little spread, 286 00:16:27,240 --> 00:16:29,800 right? 3.2 to 53 by 2025. 287 00:16:29,800 --> 00:16:33,960 Well, we're already in 2025 Price Waterhouse Coopers PwC 288 00:16:33,960 --> 00:16:37,440 forecasted the ESG focused institutional investments will 289 00:16:37,440 --> 00:16:43,560 increase from 18.4 trillion in 2021 to 33.9 trillion in 2026. 290 00:16:44,320 --> 00:16:48,760 And then what about Claude? Don't forget, Claude, based on 291 00:16:48,760 --> 00:16:52,880 the latest reliable data, global ESG assets we're estimated to be 292 00:16:52,880 --> 00:16:57,680 around 35 to $40 trillion. Where's grok? 293 00:16:57,720 --> 00:17:01,600 Grok Is grok in this? Croc doesn't believe in ESG 294 00:17:01,600 --> 00:17:04,480 unfortunately. Really enough, Croc refused to 295 00:17:04,480 --> 00:17:09,839 answer my question strangely. So this again, this is such an 296 00:17:09,839 --> 00:17:11,920 important point because who knows, right? 297 00:17:12,040 --> 00:17:16,200 What do you define as a environment social governance 298 00:17:16,200 --> 00:17:19,520 strategy? What would you put within the 299 00:17:19,680 --> 00:17:22,880 ESG assets under management bucket? 300 00:17:23,240 --> 00:17:26,400 Do we have a really, really tight definition and we'll go on 301 00:17:26,400 --> 00:17:30,280 and talk about the different ESG strategies in a bit, or do we go 302 00:17:30,480 --> 00:17:35,440 super, super broad and just go, hey, look, anything, any 303 00:17:35,640 --> 00:17:41,920 investment vehicle that excludes guns or pornography, that's ESG, 304 00:17:42,280 --> 00:17:44,200 right? And therefore, you've basically 305 00:17:44,200 --> 00:17:48,360 got $100 trillion of AUM. Isn't there also like quite a 306 00:17:48,360 --> 00:17:52,360 large incentive for companies to massively high tick this number? 307 00:17:52,360 --> 00:17:55,120 And so you could basically say, well, the true numbers probably 308 00:17:55,120 --> 00:17:57,920 110th of whatever the public figure is. 309 00:17:58,720 --> 00:18:01,640 Yeah, it's gosh. And this and This is why, and we 310 00:18:01,640 --> 00:18:03,960 would definitely get onto this probably in Part 2. 311 00:18:03,960 --> 00:18:06,960 This is why ESG has been somewhat discredited, right? 312 00:18:07,720 --> 00:18:12,880 So, you know, have a normal fund slap on a nice little picture of 313 00:18:13,160 --> 00:18:17,160 a wind turbine on the prospectus, call it an ESG fund 314 00:18:17,160 --> 00:18:18,440 and just get on with your business. 315 00:18:18,720 --> 00:18:23,920 It's been, it's been a kind of the the detractor's view of ESG 316 00:18:24,000 --> 00:18:27,640 and we'll get onto maybe some of the best actors and maybe some 317 00:18:27,640 --> 00:18:30,200 of the more malign actors in a little bit. 318 00:18:30,200 --> 00:18:34,360 But I just wanted to maybe focus quickly on the geographic split. 319 00:18:35,040 --> 00:18:38,880 As you can probably imagine, it is Europe that's leading the way 320 00:18:39,640 --> 00:18:43,360 and by quite some way. So I've got a note here that 321 00:18:43,360 --> 00:18:50,040 says 46% of global sustainable investing assets are European, 322 00:18:50,840 --> 00:18:57,320 28% US, 14% Japan, interestingly enough, 8% calendar. 323 00:18:57,720 --> 00:18:59,680 So Europe is really leading the way. 324 00:18:59,680 --> 00:19:03,560 And despite, and again we'll talk about this later, despite 325 00:19:03,560 --> 00:19:08,320 the backlash in the US that hasn't really reverberated so 326 00:19:08,320 --> 00:19:12,560 strongly here in the UK and in Europe as well. 327 00:19:12,720 --> 00:19:16,280 We still believe in the concept of sustainable investing. 328 00:19:16,480 --> 00:19:20,840 And we have gone so far as to actually do some really, really 329 00:19:20,840 --> 00:19:24,800 good stuff in terms of regulation, guidance, best 330 00:19:24,800 --> 00:19:27,240 practice. And it really is becoming a much 331 00:19:27,240 --> 00:19:32,240 more still fragmented, but much more kind of mature and well 332 00:19:33,560 --> 00:19:37,880 gateposted industry here here in the here in Europe, not not 333 00:19:37,880 --> 00:19:40,760 necessarily in the Europe. So thinking about just quickly 334 00:19:40,760 --> 00:19:43,960 from a careers perspective, if I was a early careers professional 335 00:19:43,960 --> 00:19:48,360 student thinking about this area, is, is London the place to 336 00:19:48,360 --> 00:19:52,240 be you would say? Yeah, it's a good question. 337 00:19:52,280 --> 00:19:55,440 I mean, there's a lot of. I spent a lot of time in the 338 00:19:55,440 --> 00:19:59,560 Netherlands, Netherlands. Amsterdam was huge on ESD when I 339 00:19:59,560 --> 00:20:03,280 was in that space. You know, the Nordics are very, 340 00:20:03,280 --> 00:20:07,720 very ESG focus and obviously if you've got big multi trillion 341 00:20:07,720 --> 00:20:10,800 dollar sovereign wealth funds, then you've got a lot of 342 00:20:10,800 --> 00:20:14,360 firepower to go behind it. So yes, London's not a bad 343 00:20:14,360 --> 00:20:17,600 shout. You know, the the smaller hubs 344 00:20:17,640 --> 00:20:20,400 around Europe are definitely worth it as well. 345 00:20:20,720 --> 00:20:23,800 So yeah, you know, you're in a good place if you care about 346 00:20:23,800 --> 00:20:27,880 this kind of stuff, and I don't think it's going away anytime 347 00:20:27,880 --> 00:20:30,040 soon across Europe. OK. 348 00:20:30,040 --> 00:20:33,920 So we've got this far and actually at this point, I still 349 00:20:33,920 --> 00:20:38,640 don't even know like what actually is ESG investing in 350 00:20:38,640 --> 00:20:41,880 terms of the specifics. So how does this work? 351 00:20:42,240 --> 00:20:44,720 I'm assuming like any investment, there's different 352 00:20:44,840 --> 00:20:47,960 ways to approach this from a strategy perspective. 353 00:20:47,960 --> 00:20:49,560 So maybe we could unpack some of that. 354 00:20:50,280 --> 00:20:52,840 Yeah, absolutely. So it's ESG. 355 00:20:52,920 --> 00:20:55,520 I've always really struggled with this term. 356 00:20:56,160 --> 00:20:58,600 I'm going to give you the kind of textbook definition 357 00:20:59,080 --> 00:21:01,120 environment social corporate governance is a set of 358 00:21:01,120 --> 00:21:03,840 considerations, including environmental issues, social 359 00:21:03,840 --> 00:21:07,200 issues, and corporate government issues that can be considered in 360 00:21:07,200 --> 00:21:10,920 investing environment social governance. 361 00:21:11,560 --> 00:21:16,360 They are three drastically, dramatically different things. 362 00:21:16,760 --> 00:21:21,120 It's almost, I can't even provide an appropriate analogy 363 00:21:21,120 --> 00:21:22,640 to it. You know, in the world of 364 00:21:22,640 --> 00:21:27,280 mainstream finance, it's like bundling together totally, 365 00:21:27,280 --> 00:21:30,800 totally different things and trying to create some form of 366 00:21:30,800 --> 00:21:33,840 strategy from it. You know, you can be the world's 367 00:21:33,840 --> 00:21:38,560 most impactful environmental company and absolutely suck at, 368 00:21:38,920 --> 00:21:41,320 you know, providing for the community and providing for your 369 00:21:41,320 --> 00:21:43,320 employees. You can be the best government 370 00:21:43,320 --> 00:21:46,040 company in the world, but the products that you make, you can 371 00:21:46,040 --> 00:21:49,200 kill people and you get them lumped in together. 372 00:21:49,360 --> 00:21:52,960 And to say that you can have an ESG score, we'll get into that 373 00:21:52,960 --> 00:21:55,320 in a second. To say that you can have an ESG 374 00:21:55,320 --> 00:22:00,400 score makes absolutely zero sense from my perspective. 375 00:22:00,400 --> 00:22:03,960 Again, maybe to use a finance analogy to try and provide a 376 00:22:03,960 --> 00:22:11,960 score that combines revenue, you know, current liabilities and 377 00:22:12,440 --> 00:22:15,320 free cash flow from operations and bundle it into one single 378 00:22:15,320 --> 00:22:17,120 number. It doesn't make any sense 379 00:22:17,280 --> 00:22:19,680 because they're three very, very different things and they 380 00:22:19,720 --> 00:22:23,280 represent very, very different elements of your business model. 381 00:22:24,080 --> 00:22:28,760 So this is, This is why, you know, the whole premise of ESG 382 00:22:28,760 --> 00:22:32,880 is flawed because it bundles 3 things together that shouldn't 383 00:22:32,880 --> 00:22:35,360 be bundled together. Now each. 384 00:22:35,560 --> 00:22:41,040 And when standing alone, the E, the S, and the G are wildly 385 00:22:41,040 --> 00:22:44,560 important, extremely important for every business. 386 00:22:44,800 --> 00:22:48,280 And every business should be massively, massively focused on 387 00:22:48,280 --> 00:22:51,520 the environment, on social issues and governance. 388 00:22:52,080 --> 00:22:55,120 But to try and lump them together, especially for very, 389 00:22:55,120 --> 00:22:57,600 very different business types, it doesn't make a lot of sense. 390 00:22:59,160 --> 00:23:04,200 Is there any examples you would say of a business who does do 391 00:23:04,200 --> 00:23:08,920 all three well? Yeah, there are some examples. 392 00:23:08,920 --> 00:23:14,160 I mean, again, not to use, not to use an overly glib example, 393 00:23:14,160 --> 00:23:18,520 but Patagonia is a really, really strong example of a 394 00:23:18,600 --> 00:23:21,120 company that absolutely nails it from an environmental 395 00:23:21,120 --> 00:23:24,920 perspective, absolutely nails it from a social perspective. 396 00:23:25,120 --> 00:23:27,560 You know, they were the first company to provide free 397 00:23:27,560 --> 00:23:31,480 childcare, longer maternity leaves, paternity leave, all of 398 00:23:31,480 --> 00:23:34,360 that kind of stuff. And their governance structure 399 00:23:34,360 --> 00:23:37,000 is so by the book. We covered this actually a 400 00:23:37,000 --> 00:23:40,960 couple of years ago on the podcast, the founder of the 401 00:23:40,960 --> 00:23:45,000 founder of Patagonia, putting the business in a perpetual 402 00:23:45,000 --> 00:23:49,520 trust such that no one can change the ethos of the company. 403 00:23:49,760 --> 00:23:53,040 So, you know, if we were to ESG rank a company, Patagonia would 404 00:23:53,040 --> 00:23:56,280 be well up there. But there were like there were, 405 00:23:56,400 --> 00:23:59,400 there were companies that do one thing really well and two other 406 00:23:59,400 --> 00:24:02,880 things dreadfully, but then their scores overall quite good. 407 00:24:02,920 --> 00:24:08,320 And you're thinking why is that? So definitely when we move on to 408 00:24:08,320 --> 00:24:11,720 talk about ESG investing strategies, definitely consider 409 00:24:11,720 --> 00:24:13,120 that as you're thinking about these things. 410 00:24:13,800 --> 00:24:15,920 Maybe one other question before we get to that, because I'm very 411 00:24:15,920 --> 00:24:18,480 interested to know about the score, the scoring system there 412 00:24:18,480 --> 00:24:21,280 and how you balance that out in a marking way. 413 00:24:21,640 --> 00:24:26,000 But one thing I hear a lot when I hear ESG is also impact 414 00:24:26,280 --> 00:24:29,600 investing. And I don't actually know what 415 00:24:29,600 --> 00:24:31,800 the difference is, to be quite frank with you. 416 00:24:31,800 --> 00:24:34,200 So. So what is impact investing as 417 00:24:34,200 --> 00:24:38,120 opposed to ESG? Yeah, it's it's a really, really 418 00:24:38,120 --> 00:24:41,360 good question. And again, each of these 419 00:24:41,360 --> 00:24:44,000 different topics we can pick apart for for an entire episode, 420 00:24:44,000 --> 00:24:46,960 but we're trying to give you good bang for your listening 421 00:24:46,960 --> 00:24:49,360 buck. The way that I like to think 422 00:24:49,360 --> 00:24:52,040 about it is you have this spectrum, right? 423 00:24:52,160 --> 00:24:55,320 You have this investing spectrum that goes all the way at the 424 00:24:55,320 --> 00:24:58,080 left hand side in your kind of mind's eye, all the way at the 425 00:24:58,080 --> 00:25:00,800 left hand side. Greed is good, you make a load 426 00:25:00,800 --> 00:25:03,080 of money, don't care about anything else, right? 427 00:25:03,080 --> 00:25:06,080 That's just like your golden gecko all the way at the right 428 00:25:06,080 --> 00:25:09,840 hand side is pure philanthropy, giving money away without any 429 00:25:09,840 --> 00:25:14,440 expectation of return. Now the all of the investing 430 00:25:14,440 --> 00:25:20,080 strategies that have some form of ESG or impact investing 431 00:25:21,360 --> 00:25:24,000 thesis sits somewhere along the spectrum. 432 00:25:24,240 --> 00:25:30,000 Right now that Harvard Business Review has said that there are 7 433 00:25:30,000 --> 00:25:35,760 different types of sustainable investing strategy and they move 434 00:25:35,760 --> 00:25:39,120 along the spectrum, The Gordon Gecko to philanthropy spectrum 435 00:25:39,400 --> 00:25:43,360 from negative screening and I'll talk about that in a second. 436 00:25:43,360 --> 00:25:46,920 On the left hand side, negative screening, positive screening, 437 00:25:47,120 --> 00:25:51,880 portfolio till ESG integration, shareholder interaction, 438 00:25:51,880 --> 00:25:55,520 shareholder action, shareholder Activision and then impact 439 00:25:55,520 --> 00:25:56,960 investing. We're all the way to the right 440 00:25:56,960 --> 00:26:00,680 hand side, very, very quick description of these different 441 00:26:00,680 --> 00:26:03,720 strategies. So negative screening, all 442 00:26:03,720 --> 00:26:06,600 right, normal fun, but I don't allow gambling and pornography. 443 00:26:07,560 --> 00:26:11,280 Positive screening, normal fun, but I don't allow gambling and 444 00:26:11,280 --> 00:26:13,800 pornography. And I am going to positively 445 00:26:13,800 --> 00:26:17,120 overweight certain areas that I think are quite good, maybe 446 00:26:17,200 --> 00:26:20,920 renewable energy portfolio Tilt just takes that to a kind of 447 00:26:20,960 --> 00:26:27,320 slightly more systematic degree. I I'm going to overweight every 448 00:26:27,960 --> 00:26:32,480 company that has an ESG rating of over X by 15% relative to the 449 00:26:32,480 --> 00:26:35,200 benchmark. ESG integration is where you're 450 00:26:35,200 --> 00:26:39,680 really looking deeply into the behaviors, the performance, the 451 00:26:41,760 --> 00:26:46,280 carbon emissions, the employee with the employee surveys and 452 00:26:46,280 --> 00:26:49,120 actually making active investment decisions based on 453 00:26:49,520 --> 00:26:52,720 ESG factors as opposed to rules set. 454 00:26:53,440 --> 00:26:59,480 By the way, those four I would consider in no way to be impact 455 00:26:59,480 --> 00:27:02,160 investing. The concept of impact investing 456 00:27:02,160 --> 00:27:07,240 is your dollar is going to have a positive impact on a 457 00:27:07,240 --> 00:27:10,360 particular environmental or social theme, right? 458 00:27:11,040 --> 00:27:13,440 If you're just doing positive screening or negative screening, 459 00:27:13,600 --> 00:27:17,480 it's more of a kind of mental hygiene point, like you're not 460 00:27:17,480 --> 00:27:20,400 having a positive or negative impact, You're just not aligned 461 00:27:20,400 --> 00:27:22,960 to something that has a positive or negative or that has a 462 00:27:22,960 --> 00:27:25,160 negative impact. It's a different mindset. 463 00:27:25,160 --> 00:27:27,840 You're not going to change the world by not investing in 464 00:27:27,840 --> 00:27:31,760 gambling. You might start changing things 465 00:27:32,160 --> 00:27:35,200 when you move on to shareholder action and shareholder activism 466 00:27:35,720 --> 00:27:38,440 because you are doing things like building up stakes and 467 00:27:38,440 --> 00:27:42,680 companies in order to force them to decommission their coal power 468 00:27:42,680 --> 00:27:49,080 plants or or invest in a update to the manufacturing facilities 469 00:27:49,080 --> 00:27:53,520 or get out of slave child labor and slave labor and things like 470 00:27:53,520 --> 00:27:55,720 that. So that is where you start to 471 00:27:55,720 --> 00:27:57,880 get a little bit of positive impact from your investing. 472 00:27:58,640 --> 00:28:01,160 And then as you move all the way to the right hand side, you get 473 00:28:01,160 --> 00:28:04,760 impact investing, which is, look, I'm even willing to 474 00:28:04,760 --> 00:28:09,080 consider certainly in the short term, a slight decrease in my 475 00:28:09,080 --> 00:28:14,040 financial ROI in order to maximize my non financial ROI. 476 00:28:14,480 --> 00:28:16,800 That is when we get into the world of impact investing. 477 00:28:17,040 --> 00:28:21,120 And by the way, impact investing, it only really works 478 00:28:21,120 --> 00:28:24,480 with private companies or project finance where you are 479 00:28:24,480 --> 00:28:29,240 the additional dollar that makes that project happen or makes 480 00:28:29,240 --> 00:28:32,440 that impact happen within a company, right? 481 00:28:32,720 --> 00:28:35,600 Very hard to do impact investing in the public markets because 482 00:28:35,600 --> 00:28:37,200 you just don't have enough power, right? 483 00:28:37,920 --> 00:28:40,320 You just mentioned the word there, which I also hear within 484 00:28:40,320 --> 00:28:43,080 this mix in this domain, which is project financing. 485 00:28:43,360 --> 00:28:46,000 Just quickly what's project financing? 486 00:28:46,680 --> 00:28:49,480 Yeah. So project finance is one of the 487 00:28:49,480 --> 00:28:51,880 sweet spots of of the world of impact investing. 488 00:28:51,880 --> 00:28:55,320 I would say if I was really, really passionate about 489 00:28:56,320 --> 00:29:00,360 investing money that is going to have an additional positive 490 00:29:00,360 --> 00:29:02,920 impact. We talk about the concept of 491 00:29:02,920 --> 00:29:05,640 additionality a lot in the world of impact investing. 492 00:29:05,960 --> 00:29:10,080 Does my dollar, does my additional dollar help create 493 00:29:10,080 --> 00:29:13,720 additional impact, right? If my dollar was not there, 494 00:29:13,720 --> 00:29:17,320 would that impact happen in the public markets? 495 00:29:17,320 --> 00:29:19,360 If my dollar was not there, someone else would fill that 496 00:29:19,360 --> 00:29:21,160 dollar because there's liquidity, right? 497 00:29:21,560 --> 00:29:26,200 So in the world of impact investing, the place where your 498 00:29:26,200 --> 00:29:30,720 additional dollar can go the furthest is either in start-ups 499 00:29:31,600 --> 00:29:35,480 where private companies trying to do good, seeking their round 500 00:29:35,480 --> 00:29:39,120 of capital to bring that breakthrough impact technology 501 00:29:39,120 --> 00:29:44,680 to to to the fore or project finance, which again, imagine 502 00:29:44,680 --> 00:29:47,240 trying to build a massive wind farm. 503 00:29:47,440 --> 00:29:52,080 Imagine trying to build a carbon capture facility. 504 00:29:52,440 --> 00:29:54,760 Imagine trying to build a huge solar farm. 505 00:29:55,400 --> 00:29:58,240 From an environmental perspective, that dollar that 506 00:29:58,240 --> 00:30:01,200 you're putting in is going to have an additional positive 507 00:30:01,200 --> 00:30:06,520 impact in the long term on the E part of the ES and the G So 508 00:30:07,080 --> 00:30:10,000 project finance, long term capital, that's where these 509 00:30:10,000 --> 00:30:12,200 dollars really, really get used very, very well. 510 00:30:12,720 --> 00:30:15,160 Yeah, actually what's really cool with this two-part series 511 00:30:15,400 --> 00:30:20,400 is just this week I interviewed someone at UBS as part of this 512 00:30:20,400 --> 00:30:24,080 series that I'm doing with women in the industry and she was in 513 00:30:24,160 --> 00:30:27,320 project financing. So it'll be really nice to hear 514 00:30:27,320 --> 00:30:28,840 her. She explains some of this 515 00:30:28,840 --> 00:30:31,680 actually in her her day-to-day, her day-to-day job. 516 00:30:31,680 --> 00:30:35,560 But with that final part of that question, actually, is that so 517 00:30:35,680 --> 00:30:38,720 if I'm thinking as a young person, as a job to work, this 518 00:30:38,720 --> 00:30:41,520 is really like, let's say, sparked my intrigue. 519 00:30:41,520 --> 00:30:44,080 I'm like, actually, this sounds really aligned to my personal 520 00:30:44,080 --> 00:30:47,040 goals as well as working in the financial industry. 521 00:30:47,200 --> 00:30:52,400 Would all banks do this as a potential pocket within their 522 00:30:52,400 --> 00:30:54,560 teams? Yeah, yeah. 523 00:30:54,560 --> 00:30:59,360 So all banks have sustainable, all all asset managers have 524 00:30:59,520 --> 00:31:02,800 sustainable in all major asset managers have sustainable 525 00:31:02,800 --> 00:31:08,440 investing arms and all banks have sustainability unit. 526 00:31:09,120 --> 00:31:12,840 The difficulty is and then the the hard thing from a young 527 00:31:12,840 --> 00:31:17,360 person's perspective who is coming in with that kind of 528 00:31:17,360 --> 00:31:19,800 young person energy that we spoke about at the beginning of 529 00:31:19,800 --> 00:31:23,080 the podcast is you like you want to have an impact, right? 530 00:31:23,080 --> 00:31:26,200 You want to do some good stuff and you want to stay true to the 531 00:31:26,200 --> 00:31:29,560 values that you've built as you've been kind of expanding 532 00:31:29,560 --> 00:31:34,040 your mind during university. And the last thing you probably 533 00:31:34,040 --> 00:31:38,640 want to do is get stuck in a very in a slightly more 534 00:31:38,640 --> 00:31:42,160 bureaucratic organization where you actually think we talk a lot 535 00:31:42,160 --> 00:31:45,240 about sustainability. You know, we put put out glossy 536 00:31:45,240 --> 00:31:50,000 brochures, but actually what we doing here, you know what, what 537 00:31:50,000 --> 00:31:52,480 is, what is the point of what we're doing? 538 00:31:52,520 --> 00:31:54,240 Yeah, maybe we're not investing in arms. 539 00:31:54,240 --> 00:31:58,160 Maybe we are slightly overweighting some, you know, 540 00:31:58,160 --> 00:32:02,000 companies that score well on an ESG rating scale. 541 00:32:02,280 --> 00:32:04,440 But is that really moving, moving the needle? 542 00:32:04,880 --> 00:32:07,400 So there's lots of different ways that you can navigate, 543 00:32:07,400 --> 00:32:10,440 right. You know, if, if my thesis is 544 00:32:10,440 --> 00:32:15,320 somewhat right that the best impact investments are, you 545 00:32:15,320 --> 00:32:19,000 know, private companies, startups, project finance, and 546 00:32:19,040 --> 00:32:22,800 you can find some unbelievable small asset managers in these 547 00:32:22,800 --> 00:32:25,240 spaces. Then where you want to navigate 548 00:32:25,240 --> 00:32:29,080 is you might want to start off doing investment banking, moving 549 00:32:29,080 --> 00:32:31,800 into private equity or venture capital and then moving into 550 00:32:31,800 --> 00:32:33,920 impact. Or you might want to start off 551 00:32:34,240 --> 00:32:38,920 doing yeah, something like project finance within a, within 552 00:32:38,920 --> 00:32:42,280 a large bank and then move to more of an A sustainability or 553 00:32:42,520 --> 00:32:45,120 environment focused project finance organization. 554 00:32:45,360 --> 00:32:49,160 So you don't necessarily just need to go, all right, I need to 555 00:32:49,160 --> 00:32:53,440 get in the sustainability fund within this company that might 556 00:32:53,480 --> 00:32:56,200 actually turn you off a little bit, sorry to say. 557 00:32:56,960 --> 00:32:59,120 So yeah, there's there's, there's routes to get where you 558 00:32:59,120 --> 00:33:00,480 want to be. You probably aren't going to be 559 00:33:00,480 --> 00:33:04,240 able to jump straight into an amazing impact investing, 560 00:33:04,240 --> 00:33:07,440 project finance or venture capital fund from day dot, but 561 00:33:07,440 --> 00:33:08,720 you might get there in three or five years. 562 00:33:09,240 --> 00:33:11,200 Yeah. And just to close on that, one 563 00:33:11,200 --> 00:33:13,240 thing that this lady said was that she actually used to work 564 00:33:13,240 --> 00:33:16,920 for Tesla and she worked specifically at the battery pack 565 00:33:16,920 --> 00:33:20,000 division of Tesla. And she was like, that felt good 566 00:33:20,000 --> 00:33:22,800 for all these different reasons. However, through project 567 00:33:22,800 --> 00:33:26,120 financing, she gets to touch many different projects and 568 00:33:26,120 --> 00:33:29,200 offer a much bigger impact to the work that she's doing rather 569 00:33:29,200 --> 00:33:32,200 than a concentration within just one specific company and one 570 00:33:32,200 --> 00:33:34,400 product. So yeah, it was made made a lot 571 00:33:34,400 --> 00:33:35,760 of sense when she was explaining it. 572 00:33:36,840 --> 00:33:37,400 Cool. Well, look. 573 00:33:38,560 --> 00:33:39,240 Should we move on? Should we? 574 00:33:39,800 --> 00:33:41,600 Yeah. Should we, Should we talk about, 575 00:33:42,120 --> 00:33:46,240 let's bring this, this part to the close by talking about why 576 00:33:46,240 --> 00:33:50,480 it's really, really hard to do. And we've, we've covered a 577 00:33:50,520 --> 00:33:54,160 little bit of this before. And then obviously, we'll tee it 578 00:33:54,160 --> 00:33:58,640 up for the next episode where we discuss whether ESG is indeed 579 00:33:58,880 --> 00:34:01,200 dead or not. And I'm just trying to think 580 00:34:01,200 --> 00:34:05,560 about, excuse me, just trying to think about why this thing is so 581 00:34:05,560 --> 00:34:08,000 extraordinarily hard. And we've touched upon this 582 00:34:08,000 --> 00:34:11,480 difference between the E, the S, and the GI. 583 00:34:11,480 --> 00:34:15,960 Think there's so much confusion. Whenever there is multiple 584 00:34:15,960 --> 00:34:19,840 different standards, multiple different acronyms, multiple 585 00:34:19,840 --> 00:34:23,719 different ways of measuring, you're going to get uncertainty 586 00:34:24,400 --> 00:34:26,520 and what the markets love. What do investors love? 587 00:34:26,960 --> 00:34:29,120 They love certainty and they love data points. 588 00:34:29,840 --> 00:34:32,440 You know, I've got a very, very strong thesis that I've probably 589 00:34:32,760 --> 00:34:35,880 spoken about many times before in the podcast, which is one of 590 00:34:35,880 --> 00:34:41,360 the reasons why finance is so unbelievably attractive to 591 00:34:41,679 --> 00:34:45,679 people with analytical or competitive mindsets is because 592 00:34:45,880 --> 00:34:47,360 you can compare your performance. 593 00:34:47,600 --> 00:34:49,320 Everything is relative comparison. 594 00:34:49,880 --> 00:34:53,679 I outperformed you. I get rewarded more than you as 595 00:34:53,679 --> 00:34:56,679 an investor. My company's profit margin is 596 00:34:56,679 --> 00:34:58,120 higher than your company's profit margin. 597 00:34:58,120 --> 00:34:59,840 Therefore I should receive the most dollars. 598 00:35:00,120 --> 00:35:05,200 That comparability is a thing of absolute beauty for anyone that 599 00:35:05,200 --> 00:35:11,880 wants to do analysis, right? So the dollar and the global 600 00:35:12,000 --> 00:35:14,760 account, international accounting standards and things 601 00:35:14,760 --> 00:35:19,280 like that are prepared the way for the industry that we all 602 00:35:19,280 --> 00:35:24,520 work in to absolutely flourish. Now if you don't have that, it's 603 00:35:24,520 --> 00:35:29,360 really, really hard to make good defensible evidence based 604 00:35:29,560 --> 00:35:33,040 comparable decisions, right? And I've just written in my 605 00:35:33,040 --> 00:35:35,520 notes, I just went through a little scrawl of some of the 606 00:35:35,520 --> 00:35:38,440 different frameworks that I remember from when I was doing 607 00:35:38,440 --> 00:35:41,760 this thing full time. You've got the GRI. 608 00:35:41,760 --> 00:35:44,080 I'm not going to explain what they are because it will take 609 00:35:44,080 --> 00:35:46,760 too long. You've got the GRI, the CDP, 610 00:35:46,760 --> 00:35:53,600 this, the SASB, the TCFD, the W, the WDI, ratings agencies, MSCI, 611 00:35:53,600 --> 00:35:56,880 Sustainalytics, Rep Risk, ISS, Dow Jones, Bloomberg, Footsie, 612 00:35:56,880 --> 00:36:01,960 Russell Video, Iris, the PRI, the CDSB, the SD, GS, like. 613 00:36:02,560 --> 00:36:04,720 And they were all trying to do roughly the same thing, which is 614 00:36:04,720 --> 00:36:06,960 trying to figure out how sustainable companies and funds 615 00:36:06,960 --> 00:36:08,160 are. You're never going to get 616 00:36:08,160 --> 00:36:11,720 anywhere as an industry. And actually with that amount of 617 00:36:11,720 --> 00:36:14,800 confusion, you're going to get mistrust and you're going to get 618 00:36:14,800 --> 00:36:17,800 this information. So why is it hard to do? 619 00:36:18,160 --> 00:36:21,120 Because we don't really know what we're measuring standards. 620 00:36:21,200 --> 00:36:25,880 The standards aren't clear enough and therefore the ability 621 00:36:25,880 --> 00:36:27,520 to undermine the industry is pretty right. 622 00:36:27,840 --> 00:36:30,480 So to make that really simplistic, then if you think 623 00:36:30,480 --> 00:36:34,600 about say, a sovereign rating agency where it's dominated by 624 00:36:34,680 --> 00:36:38,200 the big three. So this is just basically the 625 00:36:38,200 --> 00:36:42,200 opposite of that where what there's too many participants 626 00:36:42,200 --> 00:36:44,640 trying to mark too many different types of approaches. 627 00:36:44,640 --> 00:36:47,760 There's no standard uniform way like you would with the Moody's, 628 00:36:47,760 --> 00:36:49,920 Fitch, S&P. Exactly. 629 00:36:50,000 --> 00:36:53,520 You know, Moody's, Fitch, S&P. What you're trying to understand 630 00:36:53,560 --> 00:36:58,040 is how likely is this particular instrument to default, right? 631 00:36:58,560 --> 00:37:01,400 And that is, you know, there are tried and tested methods, 632 00:37:01,560 --> 00:37:05,240 quantitative and qualitative methods in order to get to a 633 00:37:05,240 --> 00:37:08,400 pretty homogeneous outcome for the three different rating 634 00:37:08,400 --> 00:37:11,600 agencies. One might rate an instrument AAA 635 00:37:11,600 --> 00:37:14,640 and one might rate it AA Plus, but they're they're pretty 636 00:37:14,640 --> 00:37:16,160 similar. I'm going to give you a couple 637 00:37:16,160 --> 00:37:19,280 of examples of the ratings divergent that makes this whole 638 00:37:19,280 --> 00:37:22,480 thing extremely difficult. So you've got MSCI, 639 00:37:22,800 --> 00:37:27,800 Sustainalytic and S&P Global, three big ESG ratings agencies. 640 00:37:28,120 --> 00:37:30,320 I'm going to take three companies here and just show you 641 00:37:30,320 --> 00:37:35,640 the difference in terms of their approach to these three 642 00:37:35,640 --> 00:37:37,840 different companies. So the first, first is Berkshire 643 00:37:37,840 --> 00:37:43,840 Hathaway. So MSCI rates it double B, which 644 00:37:43,840 --> 00:37:49,840 is sub investment grade, whereas Sustainalytics rates it very low 645 00:37:49,840 --> 00:37:53,200 risk from an ESG perspective, IE it's good. 646 00:37:54,200 --> 00:37:59,000 S&P Global gives it a score of 14 out of 100 on ESG I it's very 647 00:37:59,000 --> 00:38:03,720 bad. Now on Tesla, MSCI rates it an A 648 00:38:04,000 --> 00:38:08,160 pretty good, whereas Sustain Analytics gives it a medium risk 649 00:38:08,920 --> 00:38:14,120 and S&P Global gives it a very, very low 32 out of 100, which 650 00:38:14,120 --> 00:38:17,200 surprises me because Tesla is doing some quite good stuff from 651 00:38:17,200 --> 00:38:20,480 an environmental perspective. The Home Depot over in the 652 00:38:20,480 --> 00:38:23,920 USMSCI gives it a AA gold standard. 653 00:38:24,960 --> 00:38:30,840 ES Sustainlitics gives it a low risk 12.5, which is again very 654 00:38:30,840 --> 00:38:33,560 good. But then S&P Global only gives 655 00:38:33,560 --> 00:38:37,000 it 37 out of 100 high risk. Why? 656 00:38:37,840 --> 00:38:40,200 Because everyone's got totally different ways of approaching 657 00:38:40,200 --> 00:38:42,280 this stuff. And if you're going to get this 658 00:38:42,280 --> 00:38:47,520 divergent across people that pretend to be experts, are you 659 00:38:47,520 --> 00:38:49,080 going to get really, really good decisions? 660 00:38:49,080 --> 00:38:50,640 Are you going to get consistent decisions? 661 00:38:50,640 --> 00:38:52,400 Are you going to get great outcomes? 662 00:38:52,520 --> 00:38:55,600 Probably not. To close then this, this first 663 00:38:55,600 --> 00:39:01,120 part, is there like a, a philosophical part of this type 664 00:39:01,120 --> 00:39:04,880 of investing? And is there a case to be made 665 00:39:04,880 --> 00:39:10,480 that, well, if I do have, if I'm investing and I my goal is to 666 00:39:10,480 --> 00:39:13,640 make as much money as possible. If I think about myself as an 667 00:39:13,640 --> 00:39:18,480 individual, if I could get to a place to satisfy all my needs 668 00:39:18,480 --> 00:39:22,040 and desires, I probably would give it away and have 0 669 00:39:22,040 --> 00:39:24,280 expectation of anything in return. 670 00:39:24,520 --> 00:39:28,320 But until I get to that point, then I'm probably not going to 671 00:39:28,320 --> 00:39:30,760 have that same degree of, of thought. 672 00:39:30,760 --> 00:39:35,360 So is there some sort of like philosophical part of this that 673 00:39:35,360 --> 00:39:39,880 we haven't really touched on? Yeah, that definitely is. 674 00:39:39,880 --> 00:39:43,040 And and this can actually be quite well explained or 675 00:39:43,040 --> 00:39:45,720 represented through the last 10 years, right. 676 00:39:46,000 --> 00:39:51,880 So markets doing pretty well, you know, 2015 plus low interest 677 00:39:51,880 --> 00:39:56,920 rate environment, consumer was feeling not bad, economic growth 678 00:39:56,920 --> 00:40:01,480 was OK and ESG was flourishing, right, so. 679 00:40:02,280 --> 00:40:04,840 There was an argument that said, look, in, in, in good times, 680 00:40:05,000 --> 00:40:07,400 Absolutely. You know, let's do good old, you 681 00:40:07,400 --> 00:40:10,320 know, good ESG investing, You know, let's give something back. 682 00:40:10,320 --> 00:40:12,000 Let's feel really good about ourselves. 683 00:40:12,480 --> 00:40:16,000 But as interest rates start ratcheting up, wait a second. 684 00:40:16,080 --> 00:40:20,760 Now I kind of need to look after my own house first before I 685 00:40:20,800 --> 00:40:25,840 start thinking about, you know, what might be considered to be a 686 00:40:26,240 --> 00:40:28,480 strategy that doesn't make me as much money. 687 00:40:29,000 --> 00:40:31,200 And I think it's really interesting to think about this 688 00:40:31,200 --> 00:40:36,120 concept again, just theoretically, that in theory 689 00:40:36,600 --> 00:40:42,400 it's brilliant to be a impact investor, an ESG investor. 690 00:40:42,520 --> 00:40:46,440 I totally agree with the concept of companies doing good and 691 00:40:46,440 --> 00:40:49,720 making money, investors thinking about the social and the 692 00:40:49,720 --> 00:40:53,040 environmental issues that they're facing, all good from a 693 00:40:53,040 --> 00:40:56,360 theoretical perspective. But then I start to think to 694 00:40:56,360 --> 00:40:59,520 myself, all right, well, what about my pension? 695 00:41:00,440 --> 00:41:02,920 You know, I want to retire and have a really, really 696 00:41:02,920 --> 00:41:06,080 comfortable retirement. If someone's going to say, look, 697 00:41:06,400 --> 00:41:09,760 you know, it's either you make it, you, you have a comfortable 698 00:41:09,760 --> 00:41:11,440 retirement or you have a slightly less comfortable 699 00:41:11,440 --> 00:41:14,640 retirement, but you're investing in some really good stuff. 700 00:41:15,000 --> 00:41:19,560 Then I have to start thinking it's now a personal decision and 701 00:41:19,560 --> 00:41:23,000 I might I might need to wear this for a little bit in order 702 00:41:23,000 --> 00:41:24,920 to do quote UN quote the right thing. 703 00:41:25,400 --> 00:41:29,440 Now, I don't want to end with that message because we're going 704 00:41:29,440 --> 00:41:32,440 to go and talk about it in the second part because there is a 705 00:41:32,440 --> 00:41:34,840 way of, you know, this is not a 0 sum game. 706 00:41:35,320 --> 00:41:38,640 I'm very, very clear on that. It's not either you make money 707 00:41:38,640 --> 00:41:41,000 or you do good. You can do both. 708 00:41:41,880 --> 00:41:43,760 And we'll talk about that in the second episode. 709 00:41:44,000 --> 00:41:47,520 But there certainly is this concept of like, you know, 710 00:41:48,040 --> 00:41:52,480 should investors just make as much money as possible and then 711 00:41:52,480 --> 00:41:56,880 regulators regulate and put the right guardrails in place so 712 00:41:56,880 --> 00:42:00,360 that they can only invest in certain elements and at certain 713 00:42:00,360 --> 00:42:02,640 time? And should they also tax 714 00:42:02,640 --> 00:42:06,680 appropriately so that the quote UN quote trickle down comes into 715 00:42:06,680 --> 00:42:08,680 play? So investors you'd, you know, 716 00:42:08,680 --> 00:42:10,840 you're like thoroughbreds, right, right. 717 00:42:11,040 --> 00:42:14,440 You just, you just, you just horses and you just go as fast 718 00:42:14,440 --> 00:42:17,120 as you can to the finish line. But we need to make sure that 719 00:42:17,120 --> 00:42:19,680 there are rails on the left and the right hand side so that you 720 00:42:19,680 --> 00:42:23,720 get to the finish line. That might be a argument that a 721 00:42:23,720 --> 00:42:25,920 lot of people are talking. About, yeah, I'm not sure that 722 00:42:25,920 --> 00:42:30,000 would hold weight in its implementation in the Western 723 00:42:30,000 --> 00:42:34,680 democracy, but OK. Well, look, right there is a 724 00:42:34,680 --> 00:42:38,000 very good reason why if you don't, and I was looking on 725 00:42:38,000 --> 00:42:42,720 Spotify, I think 66% of people follow, subscribe to that 726 00:42:42,720 --> 00:42:44,680 Channel. So there's a big portion of you 727 00:42:44,680 --> 00:42:47,720 there that don't. So as you just heard, plenty 728 00:42:47,720 --> 00:42:49,560 more insights for Steven to share. 729 00:42:49,680 --> 00:42:52,240 So make sure you stay tuned and we'll drop that the following 730 00:42:52,240 --> 00:42:53,520 week. So thank you very much everyone 731 00:42:53,520 --> 00:42:55,400 for listening. And thank you, Steven, as always 732 00:42:55,400 --> 00:42:57,640 for your insights. Thanks Hun. 733 00:43:07,480 --> 00:43:09,680 Ever wonder what your lashes are destined for? 734 00:43:10,240 --> 00:43:13,200 The cards have spoken. Maybelline New York Mascara does 735 00:43:13,200 --> 00:43:15,280 it all. 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